Hawaii Six O - Gary Wagner
Lower Gold Prices Today Complete Death Cross Pattern
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
Gold futures closed down $3.10 today, with the August Comex contract currently fixed at $1,267.60. This three-dollar decline completed a pattern that we identified last week called a "death cross". A "death cross" is created when the shorter-term moving average crosses below the longer-term moving average.
This pattern is created from a 200 and a 50-day moving average. As such, these time parameters for each moving average are used to gauge short and long-term market trends. The short-term average crossing below the long-term average can signal the point in time in which a short-term correction has become a long-term selloff. As such, it can undoubtedly be indicating that gold prices could deteriorate further to much lower pricing.
Historically speaking, since 2013 there have been two instances of a death cross which occurred just before a significant selloff in gold pricing. There have also been two times in which a golden cross was identified (when the short-term moving average moves back above the long-term moving average) resulting in higher pricing.
However, there is also an occurrence in which the moving averages crossed back and forth over a 10-month time span, in essence, indicating a tight sideways market range until a final cross signaled dramatically lower pricing.
The most significant of the two occurrences of a death cross pattern occurred at the beginning of 2013 when gold was trading at $1,660 per ounce. The moving averages did not cross back to a golden cross until the end of March 2014, with gold trading at $1,267 per ounce. Also during that period in time, gold prices traded to a low of $1,190 per ounce on two occasions.
In November 2017, gold was trading at approximately $1,275 per ounce when another occurrence of a death cross appeared. From that moment, gold prices plunged to $1,120 before recovering.
The fact of the matter is that there are historical examples in gold in which this pattern forewarned of an imminent and dramatic price drop. Although there are also instances of this pattern flipping back and forth between a dead and golden cross in the market-rate sideways, this pattern is not to be taken lightly. When it is correct in indicating a selloff, that selloff can be dramatic and long-term.
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Wishing you as always, good trading,